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Transmutation - What is it? Why it is important?
Just because real or personal property
started out as community or separate property does not mean that
it must end up that way. Spouses often reach agreements that
change the status of community or separate property. California
law is set up to allow spouses to do this but only under
specific and limited circumstances.
The process of changing real or personal
property from one characterization to another (for example,
changing separate property to community property) is called
"transmutation."
Though we will discuss how a transmutation
can validly occur, spouses must keep in mind that they have a
fiduciary duty to one another. Therefore, even a valid
transmutation can be set aside if there is not proper compliance
and disclosures that arise out of the confidential and fiduciary
relationships of the spouses. For this reason, a transmutation
that advantages one spouse over the other is often presumed to
have been caused by undue influence. This puts the spouse that
gets the benefit at a disadvantage because if the other spouse
challenges the transmutation, the spouse who received the
advantage of it during the marriage has to show that the there
was not a violation of the fiduciary duties that exist between
spouses.
Transmutations of real or personal property
made on or after January 1, 1985 are invalid unless evidenced
"in writing by an express declaration that is made, joined in,
consented to, or accepted by the spouse whose interest is
adversely affected." When dealing with real property, a
transmutation of real property is not effective as against third
parties (for example, creditors) without notice unless it is
recorded.
There are exceptions to this rule. Spouses
often give one another gifts. For this reason, gifts such as
clothing, wearing apparel, jewelry or other items of a personal
nature do not need to meet the strict transmutation test so long
as they are not substantial in value, which takes into account
the circumstances of the marriage.
Transmutation laws can sometimes get
complicated as there are exceptions to its rules.
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